September International Capital Flow Detail

In September, foreigners purchased $55.7 billion of domestic securities, offset by $15 billion of foreign purchases by US residents, for a net capital inflow of $40.7 billion. The bulk of foreign purchases was conducted by private investors ($44.8 billion) and the balance of $10.9 billion was by foreign official institutions. Segregated by product, foreigners purchased $44.7 billion in Treasurys ($19 billion official, 25.7 billion private), sold $1.7 billion in MBS/Agencies ($6.5 billion purchased by privates and $8.3 billion sold by banks), sold $2.9 billion in corporate bonds (entirely at the behest of private entities), and purchased $15.7 billion in stocks, once again almost entirely by private entities.

An LTM analysis of TIC indicates why the Fed is still critical in maintaining a visible bid under the MBS market. In the latest twelve months, foreigners purchased $330 billion in Treasuries, sold $17 billion in corporate bonds (surprising, considering the massive inflows into corporate funds domestically), purchased a whopping $107 billion in stocks and sold $126 billion in Agencies. Take the Fed out of the picture and watch the rate on those 30 Year Fannies explode.

The top holders of US Treasuries were the usual suspects: China ($789.9 billion, $1.8 billion increase sequentially), Japan ($751.5 billion, $20.3 billion increase) and the UK ($249.3 billion, $22.4 billion increase of which $17.3 billion was due to hedge fund increase headquartered in the Channel Islands).

Total purchases by the Big 3 increased by $13.2 billion to $38.2 billion at the same time as the yield on the 30 Year decreased from 4.18% to 4.05%. And while China reduced the rate of LT TSY purchases (from $15.4 to $10.7 billion), Japan really stepped on the accelerator, buying an additional $21.6 billion in September. 

In the Treasury Bill category, with rates declining to 0.12% for the 3 Month On The Run from 0.13%, virtually every Big 3 holder sold, except once again, for most likely what were US-based hedge funds, which acquired $17.3 billion, more than accounting for the MoM increase in Bill purchases to $6.4 billion. China sold $8.9 billion in Short-Term USTs, while Japan offloaded $2.2 billion. 

The following table summarizes the Top 10 buyers and sellers of US Assets in September:

A granular view of buyers by various asset classes is presented by the table below.

Lastly, if one assumes that Hedge Funds were the entities represented by Channel Islands and the Caribbean Countries (traditional locales of HF incorporation), the following picture emerges: in September hedge funds bought $12 billion of US equities, $3 billion in MBS/Agency (presumably PIMCO had not notified the world of its MBS disposition occurring at the same time), $3 billion in Long-Term USTs and $12 billion in Short-Terms, presumably indicative of the negative rates demonstrated recently by 3 Month UST Bills.